For the fifth time this year, the Federal Reserve chose to leave interest rates unchanged following the conclusion of its two-day monetary policy meeting.
The decision announced Wednesday by the 12-member Federal Open Market Committee (FOMC) means the federal funds rate will remain within the range of 4.25% to 4.5% at least until September when the committee reconvenes. That benchmark overnight lending rate has a broad impact on U.S. borrowing costs and indirectly influences mortgage rates, which are directly tied to 10-year Treasury yields.
The decision wasn’t unanimous, however, with Fed governors Christopher Waller and Michelle Bowman casting dissenting votes. FOMC member Adriana Kugler was absent and did not vote.
In what may be a sign of a growing rift in the central bank’s monetary policy committee, it marks the first time since 1993 that more than one FOMC member went against the prevailing tide. Waller and Bowman were in favor of lowering the target fed funds rate range by 0.25%.
“Although swings in net exports continue to affect the data, recent indicators suggest that growth of economic activity moderated in the first half of the year,” the official Fed statement read. “The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated.”
The statement continued: “In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”
The Fed decision was widely expected. Just before the 2 p.m. EDT announcement, investment activity tracked by the CME FedWatch tool put the odds at just 3% that the Fed would cut rates in July.
But the continued cautious approach by the FOMC is sure to stoke the ire of President Donald Trump, who made a final overture on social media to Federal Reserve Chair Jerome Powell on Wednesday morning, using the “Too Late” nickname he has given the central bank chief.
“2Q GDP JUST OUT: 3%, WAY BETTER THAN EXPECTED!” Trump wrote. “‘Too Late’ MUST NOW LOWER THE RATE. No Inflation! Let people buy, and refinance, their homes!”
The gross domestic product figure referenced by Trump came from the Bureau of Economic Analysis, which reported Wednesday that real GDP increased at an annual rate of 3% in the second quarter. The bureau attributed the gains to a decrease in imports and an increase in consumer spending.
The most recent inflation report from the U.S. Bureau of Labor Statistics showed the seasonally adjusted consumer price index rose 2.7% annually in June following a 2.3% reading in May. The Fed’s stated target is 2% inflation over the long run.
Impact on mortgage rates
What does the Fed rate decision mean for mortgage rates?
Tim Lawlor, chief financial officer of private real estate lender Kiavi, said in a statement provided to Scotsman Guide prior to the announcement that even if the Fed made the unexpected move to cut rates in July, “it doesn’t necessarily mean you’ll see a significant move in mortgage rates.”
“This is because movement in the 10-year Treasury, which serves as a benchmark for long-term borrowing costs, has a significantly larger and more direct impact on mortgage rates than the federal funds rate,” Lawlor explained.
He sees a “disconnect between what’s driving short-term versus long-term rates,” with the growing federal deficit putting upward pressure on longer-dated Treasury yields.
“It’s hard to tell, but I think long-term rates are a little bit more tied to the government deficit, which can affect the 10-year Treasury,” Lawlor said.
